BIG RATE DROP FOR FIXED LINE TO MOBILE CALLS

UNCLAS BOGOTA 008730

SIPDIS

E.O. 12958: N/A
TAGS: ECON ECPS ETRD CO USTR
SUBJECT: BIG RATE DROP FOR FIXED LINE TO MOBILE CALLS


1. Summary. The Telecommunications Regulatory Commission
(CRT) announced a new regulation capping the price of
fixed-line to mobile calls on September 13. The regulation
requires mobile operators to gradually lower the per minute
rate from about 1000 Colombian pesos (COP) (about 44 cents
using the current exchange rate) to 392 COP (about 17 cents)
by November 2006. CRT officials asserted that the 60 percent
decrease will better align the Colombian market with global
practice and enhance competition and fairness for Colombian
consumers. End Summary.

Big Rate Drop for Fixed Line to Mobile Calls
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2. On September 13, CRT announced a new regulation limiting
charges from fixed-line to mobile calls to a maximum of 464
Colombian pesos (about 20 cents) per minute beginning on
November 1, 2005. The regulation requires a subsequent drop
to 392 pesos (about 17 cents) per minute by November 2006.
Mobile companies are currently charging 1000 pesos
(approximately 44 cents),according to CRT officials Juan
Pablo Hernandez, Business Knowledge Coordinator, and Carlos
Andres Rebellon. CRT analysis confirmed that the higher fee
represented a "practical monopoly" for mobile companies
relative to fixed-lined providers. The new regulation was
created to enhance competition in the telecom sector.

Regulation Protects Consumer and Enhances Competition
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3. The new price cap normalizes rate structures in the
Colombian telecom market and levels the playing field between
fixed-line and mobile providers, according to CRT analysis
and officials. CRT determined through a year-long technical
study that: 1) while Colombia,s mobile-mobile rates are
below most other Latin American countries, fixed-line to
mobile fees in Colombia are the highest in the Latin America,
2) the entry of Personal Communications Systems (PCS)
technology did not affect fixed-mobile fees, 3) fees were
only 26 percent of network costs versus a range of 67-90
percent in other Latin American and international markets and
4) demand for fixed to mobile is unusually low compared to
other countries; as mobile density has increased in Colombia
(17 percent in 2003 and 34 percent in 2004),the percentage
of fixed-mobile calls of total calls has decreased (19
percent in 2003 to 12 percent in 2004). Based on this
analysis, CRT concluded that a "practical" monopoly existed
in the market for mobile providers relative to their
fixed-line competitors.


4. CRT also determined that Colombia,s poor pay a
disproportionate amount of the higher fixed-line to mobile
fee. Many from Colombia,s lower income levels do not have
access to mobile phones so they rely on fixed-line for
telephone calls. CRT found there are 3.1 million houses that
only have fixed lines and call mobile phones. Of this group,
CRT estimated that between 1.8-2.1 million or 60-67 percent
are in the bottom income brackets and will thus benefit from
the price cap.

Mobile Operators Make Unconvincing Counter-Arguments
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5. In August, CRT provided a one-month period for mobile
operators to make comments on the proposed regulation.
Mobile companies argued that: 1) CRT should not be
conducting oversight on the issue because it would be
interventionist and interfere with competition, and 2) mobile
companies have high tax rates and manufacturing expenses and
it is expensive to continue expanding mobile networks, all of
which mandate the higher fee. CRT officials said the need to
expand mobile markets has been a good argument in the past,
but there is not sufficient expansion of the network left to
justify that argument now. More importantly, CRT asked
mobile companies to provide their rate structures to support
the argument that they need the higher tariffs. The mobile
companies refused to share the information.
DRUCKER